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Home Equity Line of Credit: Not Your Typical Loan
By JJ Singh
California Mortgage Rate Columnist
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So you need money and you've determined that drawing down from your equity seems like the best option. If you're going to need access to that money in doses, a home equity line of credit could be exactly what you need.
Home Equity Line: Like a Credit Card
When you think of credit, you often think of Visa, MasterCard, or American Express. What all of those have in common is that they are linked to a plastic card that offers you the capability to charge expenses. With these accounts, you can use credit whenever you like, as long as you don't surpass your limit and you make monthly payments. These are called revolving credit accounts.
In the same way, you can use your home equity as collateral for a very large revolving account through a home equity line of credit.
A line of credit offers you the capability to draw down from a pre-authorized limit, up to the amount of equity in your home. Generally, for the first five to ten years, you would make interest-only payments, then your draw-down period would end. Afterward, you would be required to make monthly payments that included principle and interest.
What Are the HELOC Rates?
A home equity line of credit is a bit different from credit card in one very important way. Because the credit line is secured by your home as collateral, lenders can offer you a much lower interest rate than most other revolving credit accounts. As such, you might consider getting a home equity line to make home improvement projects that require several payments, to have as a cash cushion in case of an emergency, or even to pay down higher interest credit card debt.
Sources:
www.bankrate.com
About the Author
JJ Singh is a returned Peace Corps Volunteer, formerly stationed in Bolivia. Previously, he has worked as a consultant for an international development bank and as an interpreter and docent at a historic site in Virginia. JJ has a degree in economics from the University of Virginia and studied part-time at the University of Valencia in Spain.
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